Director liable for overdrawn DLA

Published on
2 min read

A company (“C”)’s liquidator (“D”) alleged that the Director (“B”) had received the sum of £273,631.51 from C without explanation, which net of his salary came to £232,674.51.

D claimed that the sums should be treated as loans by C to B, which he should repay; alternatively that B was in breach of his fiduciary duty in allowing the loan account to become overdrawn; and in the further alternative, that B held that sum on trust for C.

B sought to justify bank transfers to himself of £221,034.94 as payments of remuneration, which should be treated as a salary and/or dividends of approximately £70,000 per annum.

There was no documentary evidence demonstrating that any part of the monies received was treated in C's books as salary. Those sums were loans made to B in the expectation that there would be sufficient profits each year to clear them off.

Even if they were not loans but distributions, they were unlawful because the Companies Act 2006 Pt 23 had not been complied with.

B said in witness evidence that cash withdrawals totalling £38,122.04 and other miscellaneous payments had been made to pay sub-contractors, and that they had been properly recorded on accounts software. B had not complied with disclosure.

However, D was on notice from B's first witness statement that he claimed that each of the payments had been logged onto the accounts software, and chose not to challenge that by seeking access to the computer. Accordingly, notwithstanding that there was no documentary evidence to support B's position, he had explained the transactions satisfactorily.

The same could not be said for payments relating to gambling, restaurants and a football club, which B accepted must be repaid.

B was ordered to repay £188,814.97 to C as a debt. Alternatively, he was liable for breach of fiduciary duty in permitting the loan account to become outstanding and had to pay equitable compensation to C in that amount.

IN THE MATTER OF BM ELECTRICAL SOLUTIONS LTD (In Liquidation) sub nom (1) BM ELECTRICAL SOLUTIONS LTD (In Liquidation) (2) JAMES RICHARD DUCKWORTH (LIQUIDATOR OF BM ELECTRICAL SOLUTIONS LTD) v MICHAEL EDWARD BELCHER (2020)

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